Kocherlakota said Tuesday that it is a mistake to assume that just because the real economyis healing, inflation will automatically return to healthy levels.
Among the most dovish of the Fed's current policymakers, Kocherlakota wants the U.S. central bank to hold off on rate hikes until next year.
Bond-market investors, he said, are flagging their worries about simultaneous low growth and low inflation by driving yields down. The Fed needs to take action to turn those expectations around, he said, or risk losing its credibility and with it, its ability to conduct effective monetary policy.
"It is not enough to have a goal, you have to live up to the goal," he said.
Kocherlakota said he has not thought through how much more bond buying the Fed would need to do to lift inflation more rapidly back to target.
"I think it is really more a question of making sure that people are aware that asset purchases are on the table as a tool in case we do not see inflation going back to 2 percent with sufficient alacrity," he said. "Frankly, even that statement by itself would be very helpful."